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Increase in Custom Duty on Chemicals
Context
In the recent Union budget, the government hiked customs duty on laboratory chemicals from 10 per cent to 150 percent, increasing concerns for the scientists’ community in India.
About the update:
- Generally, chemicals attract duty of 2.5 percent, 5 percent, 7.5 percent or 10 percent.
- Central Board of Indirect Taxes and Customs has reinstated a 10% import duty on chemicals for laboratory use, reversing a previous hike announced in the Union budget for FY25.
Chemical’s import dependence:
- Laboratory chemicals (Harmonised System Code 9802) include fine chemicals and pure compounds used by the pharmaceutical and biotech industry and researchers for lab analysis and synthesis. These chemicals are niche in nature and mostly imported.
- Analysis of trade under this HS Code shows that the value of imports has been sharply rising each year. It was ?104 crore in FY21, ?181 crore in FY22, ?416 crore in FY23, and zoomed to ?701 crore in FY24.
Key Exclusions and Compliance by CBIC:
- Ethyl Alcohol: Undenatured ethyl alcohol is excluded from the 10% duty and is subject to a 150% duty due to misuse concerns.
- Compliance Requirement: Non-compliance with end-use declarations will result in ineligibility for the concessional rate.
Tariff Classification:
- Current Tariffs: Chemicals generally attract import duties ranging from 2.5% to 10% under the Customs Tariff Act.
- Special Classification: Chemicals imported in packages not exceeding 500ml or 500g for laboratory use are specifically classified with a 10% duty.
Impacts on the increase in Custom Duty:
- Pharmaceutical companies and research labs might face soaring costs for critical imported chemicals, potentially driving up research expenses and end-product prices.
- Almost 95 per cent of research labs use imported lab chemicals, and most of this experimentation work needs to be reproduced globally.
- Thus, the focus must be on quality-oriented moves rather than raising government revenue.
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